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Industry Expertise, Information Leakage and the Choice of M&A Advisors
Author(s) -
Chang Xin,
Shekhar Chander,
Tam Lewis H. K.,
Yao Jiaquan
Publication year - 2016
Publication title -
journal of business finance and accounting
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.282
H-Index - 77
eISSN - 1468-5957
pISSN - 0306-686X
DOI - 10.1111/jbfa.12165
Subject(s) - mergers and acquisitions , business , counterparty , information leakage , leakage (economics) , finance , marketing , industrial organization , economics , credit risk , computer network , computer science , macroeconomics
This paper examines the impacts of M&A advisors’ industry expertise on firms’ choice of advisors in mergers and acquisitions. We show that an investment bank's expertise in merger parties’ industries increases its likelihood of being chosen as an advisor, especially when the acquisition is more complex, and when a firm in M&A has less information about the merger counterparty. However, due to the concerns about information leakage to industry rivals through M&A advisors, acquirers are reluctant to share advisors with rival firms in the same industry, and they are more likely to switch to new advisors if their former advisors have advisory relationship with their industry rivals. In addition, we document that advisors with more industry expertise earn higher advisory fees and increase the likelihood of deal completion.